Report No. 70
51.81. Expression "improperly declined to accept delivery".-
The next comment which we will like to make on section 55(6)(b) is that where it speaks of the purchaser improperly declining to accept delivery, it obviously has in mind some such elaborate notion as "accept the completion of the contract by the execution of the conveyance or the delivery of the property as the case may be".
Acceptance of mere possession without the execution of a conveyance is not intended. For example, if under a contract for sale, the buyer is put in possession and the seller receives the purchase-money but the contract is not completed for no fault of the buyer, it cannot be said that the buyer has "accepted delivery". The charge must arise notwithstanding the acceptance of the delivery, if the other conditions of the section are satisfied.1
1. AIR 1957 Bom 79 (81).
51.82. Narrow construction.-
With reference to the opening words of section 55(6)(b), it appears that some courts1 have placed a somewhat narrow construction on these words. In the situation where the sale is not completed because the sale is void under any law, these decisions do not give the benefit of this section. Strictly speaking, in such a case, it cannot be asserted that the purchaser has improperly declined to accept delivery and the charge under section 55(6)(b) must arise.
One can understand those decisions where the seller had no interest in the property,2 because, if the seller has no interest in the property, and yet professes to sell it, the section becomes inapplicable by its very terms, since the lien can operate only on the 'interest' of the seller. But it is difficult to understand how, on the text of section 55(6)(b), it can be asserted that the buyer has improperly declined to accept delivery where the sale is void under any law.
The general principle should be that the charge, which arises from the moment the buyer pays a part of the purchase-money, is lost only if the buyer has been guilty of subsequent default.3 It may be that the seller is not at fault, in the sense that, but for the difficulty of the illegality of the transaction, he would be willing to compete the sale. But, neither is the buyer at fault. He has not 'improperly declined to accept the delivery'.
With reference to the second part of clause (b), it has been stated by Mulla,4 after referring to the words "improperly declines to accept delivery," that "This may occur when the sale goes off for default on the part of the seller or on the default on either party". The wording of the earlier half, which is now under discussion is, if anything, even more strongly in favour of the purchaser.
In a Bombay case,5 where performance of the contract became impossible because of the acquisition of the subject-matter by the State, the High Court held not only that section 55(6)(b) applied, but also that the buyer had a share in the compensation that became payable to the owner of the property. Of course, the buyer could not claim the 15 per cent. solatium payable under section 23(2) of the Land Acquisition Act, 1894, since he has no "interest" in the land as such. But the decision shows the wide scope of the section.
1. (a) 8 IC 1089 Mad (cited in the Digest); (b) ILR 1967 Guj 3.
2. Panchanan v. Nirode Kumar, AIR 1962 Cal 12.
3. Balvanta v. Vira, 1899 ILR 23 Born 56 (61).
4. Mu11a, (1973), p. 344.
5. M.A. Khan v. P.J. Surana, AIR 1972 Born 217 (222, 223), para. 15.16 (Deshmukh and Deshpande, JJ.).
51.83. Enforceability of the charge.-
It should be noted that while a charge is, in general, not enforceable against a purchaser for value without notice, the charge under section 55(6)(b) is intended to be enforceable irrespective of any such restriction. This may sound strange, but the history of section 55(6) shows that this was the intention.
51.84. Bombay case.-
The matter has been considered at length in a Bombay case,1 holding that the charge given to the buyer under section 55(6)(b) is available to the buyer irrespective of the question whether the purchaser under a seller has or has not notice of the charge. The judgment points out that in 1929, section 55(6)(b) was amended; so too, section 100 was amended. By the amendment, the expression "with notice of the payment" which occurred in section 55(6)(b) was omitted, and in section 100, new words were added:-
"And, save as otherwise expressly provided by any law for the time being in force, no charge shall be enforced against any property in the hands of a person to whom such property has been transferred for consideration and without notice of the charge."
It is worthy of note that these changes were introduced by the same enactment and the change in the language was deliberate.
In an earlier Bombay case, Wassoodew, J., observed:-
"The statutory charge on the property which a buyer gets under section 55(6)(b), Transfer of Property Act, 1882, for the purchase money paid by him to the seller is anticipation of the delivery of the property is not in regard to notice, subject to the provisions of section 100 of the same Act, and is operative against persons claiming bona fide under the' seller even though they have no notice of the charge."2
1. Abdul Hamid v. Mahomed Ali, AIR 1952 Born 67 (69).
2. Hari v. Bhagu, 38 Born LR 1200.
51.85. Recommendation as to section 55(6)(b).-
While we agree, with respect, with this view, we think that it would be better if the matter is expressed more clearly. We, therefore, recommend that section 55(6)(b) should be revised so as to add, after the words, "seller and all persons claiming under him", the words "with or without notice of payment".
51.86. Section 55(6)(b)-Application to transferees.-
Before 1929, the words "with notice of the payment" occurred in the section after the words "persons claiming under him". These were omitted by that Act. The buyer's charge could not, before the amendment, be enforced against transferees without notice.1 Under the present section, i.e. after the omission of the above words, the charge can be enforced not only against the seller, but also against all persons claiming under him irrespective of notice, notwithstanding the restrictive provisions of section 100.2 The reason for the amendment has been stated by the Special Committee as follows3:-
"Sub-clause (b) of clause (6) of the same section relates to the buyer's lien and provides that it can be enforced against the seller and other persons claiming under him with notice of the payment. It also provides that the buyer's lien can only be enforced against a person claiming under the seller, if such person has notice of the payment of the purchase-money.
The transferees and legal representatives of a seller are thus enabled to escape any liability for the amount received by the seller by pleading that they had no notice of the payment of the purchase-money. The reasons for limiting the seller's lien against third persons who have notice of the sale do not hold good in the case of the buyer's lien against persons claiming under the original seller. The words 'with notice of the payment' in sub-clause (b) of clause (6) should, therefore, be omitted."
1. AIR 1929 Mad 189 (191).
2. 1962 Ker LT 728 (729): AIR 1959 Ker 389 (390): AIR 1937 Bom 142 (144).
3. Report of the Special Committee, discussion on section 55.
There has, however, resulted some obscurity on the question whether section 55(6)(b) applies against a subsequent purchaser from the defaulting vendor. It seems to have been held in an Allahabad case1 that this provision is not applicable to a subsequent purchaser. In that case, the owner agreed to sell some plots of land and a house to the plaintiff. The plaintiff paid a major part of the price. Subsequently, the very property was sold to the defendant appellants, who claimed to be bona fide purchasers for value without notice of the prior agreement for sale.
On the facts, both the lower courts held that they had notice, and this finding was accepted by the High Court on second appeal. While rejecting the claim for specific performance made by the plaintiff on the ground of acquiescence, the lower court awarded compensation against the subsequent purchasers (section 19, Specific Relief Act, 1877) and also awarded a decree for interest under section 55(6)(b) against the subsequent purchasers. With reference to this part of the decree, the High Court observed that:-
"I do not see how this provision was applicable at all to the defendants appellants in this case. The provision deals with liabilities of a defaulting seller to a purchaser."
No further reasons were given, nor case law discussed.
1. Jhandoo v. Ramesh Chandra, AIR 1971 All 191 (198), para. 2 (M.H. Beg, J.).
51.88. Perhaps this was due to oversight, since the words "claiming under him" are clear.
"Earnest" is the sum of money paid by the buyer of property under a contract for sale in order to bind the seller to the terms of the agreement for sale. In order words, it is a guarantee for the performance of a contract. When the transaction goes forward, the earnest, or as it is called in England "deposit", becomes part of the purchase-money. It is forfeited if the transaction falls through by reason of the fault or failure on the part of the buyer, and the buyer cannot get it back.
As observed by Bowen, L.J., in Howe v. Smith, (18840 53) LJ Ch 1055 (1059), "it is quite certain that the purchaser cannot insist on abandoning his contract and yet recover his deposit, because that would be to enable him to take advantage of his own wrong." The test is whether the parties intended that the amount paid was to be treated, not merely as part payment, but as a guarantee for the due performance of the contract.
51.90. Charge confined to seller's interest.-
The charge under this clause attaches only to the seller's interest in the propertyl. The word "interest" means persona1 interest, and not the interest which a person may have in property as a trustee, according to the Calcutta High Court. Where, therefore, a trustee sells trust property and receives the earnest-money but refuses to complete the sale, the buyer cannot under this clause, have any charge on the trust property2, we are not, with respect, convinced that this was the legislative intention.
When a guardian of a'minor agrees to sell property of the minor for a purpose binding on the minor and receives purchase-money, but refuses to complete the contact, it has been held by the High Court of Nagpur that the buyer has a charge under this clause on the minor's property.3 So also, where there is a charge under this clause in favour of a non-evacuee on the property belonging to an evacuee, the interest of the evacuee is the only property subject to the charge.
The charge does not vest in the custodian, nor has he any power under the Administration of Evacuee Property Act, 1950, to determine the charge in favour of a non-exacuee.4 In the English case of Aberaman Iron Works Co. v. Wickness(1869) 17 WR (Eng) 211. A contracted to purchase certain property from B and then contracted to sell the same to C, who paid the purchase-money, to A. But A could not perform the contract with C. It was held that C had a lien on A's equitable interest in the property. This would not, however, be so in India, where a contract for purchase will not give him any equitable interest.
1. Panchanan v. Nirode, AIR 1962 Cal 12 (16). (Mukherjee and Guha, JJ.).
2. Sailendra v. Syed Hoode, AIR 1932 Cal 356 (366).
3. AIR 1939 Nag 209 (310).
4. AIR 1954 Raj 48 (49).
51.91. Omission to make disclosures referred to in paragraph 1, clause (a) and paragraph 5, clause (a).-
The omission by the seller to make a disclosure under paragraph 1, clause (a)(1) and by the buyer under paragraph 5, Clause (a) is declared to be fraudulent by the last paragraph of the section. This was the law even before the Act was passed. A seller is not bound under sub-section (1), clause (a), to make a disclosure of a fact where either he himself has no knowledge of that fact or where the buyer himself could, with ordinary care, have discovered it.
In such cases the seller cannot be considered to be guilty of fraud in not disclosing the fact. At the same time, the buyer can set aside even a completed sale on the ground of fraud by reason of a non-disclosure of a defect under sub-section (1), clause (a). The non-disclosure by the buyer under subsection (5), clause (a) would similarly entitle the seller to set aside a completed sale on the ground of fraud.